Mark Feldstein & Associates

Arlen Scherba of Sombra, an officer of 952768 Ontario Limited which operates as Restoration Masters pleaded guilty in the London Ontario Court of Justice for GST and income tax evasion. The corporation was fined $129,177. Scherba also pleased guilty personally on three counts of tax evasion and was fined $99,771. The fines delivered by the court represented 90% of the taxes evaded which is in addition to any taxes and interest due. CRA’s audit of Restoration Masters determined that during the years 2002 to 2004, the company understated its taxable income by $494,557. This resulted in reducing their corporation income tax by $133,935 and their GST by $9,595. Scherba did not report shareholder loan appropriations totaling $384,158 on the 2002 and 2004 personal income tax returns. Consequently, there was $110,856 in federal taxes evaded.

The CRA investigation determined that the company used different methods to reduce taxes, including corporate officers claiming personal expenditures as business expenses. Scherba claimed costs relating to renovating his home, landscaping services, furniture and electronic purchases, golf membership fees, sporting goods and family vacations. The son- in law of Scherba claimed boat repairs, towing, dockage fees, flooring costs and electrical work for the home, insurance, clothing and sporting goods as expenses charged to the company. When a shareholder and their families claim personal expenses as business expenses in a company, CRA will add back these expenses and will increase the corporations taxable income. They will also add back to the shareholder the benefit derived by the company paying for their personal expenses. For example, if a corporation paid $100,000 in personal expenses and claimed them as a business expense, CRA on an audit would add the $100,000 to the taxable income of the corporation and a another $100,000 to the taxable income of the shareholder. Therefore, the corporation and the shareholder will be taxed on a total of $200,000 plus penalties and interest. It is very costly to claim personal expenses in a corporation.

If Mr. Scherba and the 952768 Ontario Limited applied under the voluntary disclosure before a CRA investigation began, then they would be exempt from penalty or prosecution. They would only be liable for the income taxes and the interest.

Mark Feldstein Corporate Taxes, GST, Personal Taxes CRA, fraud, Tax Amnesty, Tax Evasion, tax penalties, Unclaimed Income

Stylianos Timkoglous of Stoney Creek pleaded guilty on June 3, 2009 on three counts of failing to file corporate income tax returns for the years 2004 to 2006. Timykoglous was fined $3,000 for failing to file the corporation tax returns. Colin Michael Fox also of Stoney Creek pleaded guilty on July 3, 2009 for failing to file his 2004 to 2006 personal income tax returns. Mr. Fox was fined $4,500 and if the fine is not paid according to the court, then there will be jail time on each charge. CRA made several requests for the missing returns before serving notices. These two individuals could have applied under the voluntary disclosure program to correct their tax affairs. They would not have been penalized or prosecuted if they contacted CRA before there was any action started on their file by the agency.

Mark Feldstein Corporate Taxes, Tax Convictions CRA, Tax Amnesty, tax penalties

Fairway Travel Inc was found guilty on July 8, 2009 for tax evasion. During the course of a CRA audit, it was discovered that there were non-deductible expenses claimed in the amount of $325,602. Consequently, the company evaded paying federal income taxes in the amount of $75,395. The Company was fined $150,000 in addition to taxes and interest.

If the company would have applied under the voluntary disclosure program before CRA commenced an action, then there would have been no penalties or interest. CRA can assess a penalty of up to 50% of the unpaid taxes due to gross negligence. In addition, the court on summary conviction can levy a fine from 50% to 200% of the tax evaded and sentence them to jail for two years.

Mark Feldstein Corporate Taxes, Tax Amnesty, Tax Convictions CRA, Tax Evasion, tax penalties, Unclaimed Income

Matthew Norman Burse of Stoney Creek pleaded guilty on July 2, 2009 in the Ontario Court or Justice. Mr. Burse was charged with income tax evasion for 2003 and 2004.

CRA’s investigation revealed that Mr. Burse did not report his income earned from the delivery of newspapers. During the course of the audit, Mr. Burse did not disclose to the auditor a bank account where the majority of his income was being deposited. The CRA investigation revealed that $71,737 was not reported in 2003 and $70,715 was not reported in 2004.

Mr. Burse was fined $13,942 which represents 50% of the federal tax evaded and was ordered to pay within 30 months. If Mr. Burse filed a voluntary disclosure before he was audited, there would have been no penalties or prosecution. He would only have to pay taxes and interest.

Mark Feldstein Personal Taxes CRA, fraud, tax penalties, Unclaimed Income

The Tax Payer Relief Provisions allow you to appeal to have penalties and interest waived if you have a good reason for not paying your taxes on time. The reasons have to be deemed extraordinary by CRA and require detailed documentation. The taxpayer has 10 years from the end of the calendar year in which the tax year or fiscal period at issue ended to make a request to the CRA for relief.

The minister may grant tax relief from penalties and interest due to extraordinary circumstances, actions of the CRA and inability to pay or financial hardship. Penalties and interest may be waived or cancelled in whole or in part where there are circumstances that are beyond the taxpayer’s control.

The following are examples of situations that may warrant tax relief:

• natural or man-made disasters such as, floods, fires, hurricanes, civil disturbances,
• serious illness or accidents,
• serious mental or emotional distress, such as a death in the immediate family.

You can apply under taxpayer relief if actions of the CRA caused the penalties and interest. For example,

• processing delays within a reasonable time whereby the taxpayer was not informed of the amount owing,
• errors in materials by CRA which led to a mistake,
• incorrect information provided to the taxpayer in writing,
• errors in processing,
• delays in resolving an objection or an appeal.

If a taxpayer can demonstrate financial hardship and there is an inability to pay the amounts owing, CRA may consider waiving or canceling interest in whole or in part to enable the taxpayer to settle their account. CRA will not cancel the interest and penalties because the taxpayer is having financial troubles. They will cancel the interest and penalties only if there is an extraordinary circumstance which is preventing payment.

Taxpayers can apply for taxpayer relief only on a prescribed form.

Mark Feldstein Personal Taxes interest owing, tax penalties